The present invention relates generally to data processing and, more particularly, to an intelligent apparatus and method for computation and analysis of tax-related data.
Domestic businesses having a nexus to one or many tax jurisdictions are required to charge sales and/or use tax on each sale of tangible personal property (and on certain enumerated taxable services) to end-user customers who cannot claim an exemption from the tax. In addition, domestic businesses must also pay the merchant, and/or accrue and self-report, the correct amount of sales and/or use tax on all table purchases of tangible personal property as well as some services. Typically, each business is required to (i) correctly calculate the measure of tax for each transaction, (ii) file a return with the authorities identifying the amount of revenue for the period, sales and/or use tax collected and accrued, plus any exemptions claimed, (iii) periodically remit the amount of taxes owed to the authorities, and (iv) defend audits undertaken by such authorities.
Traditional methods of preparing and reporting tax information to government authorities have essentially been manual. In particular, at the close of each reporting period, financial representatives of the merchants, e.g., accountants, would sit down with all the merchant's sales and other transactional data and manually calculate the amount of sales and/or use taxes owed. Selected forms, withholding tax payments, quarterly tax payments, checks and other paperwork often necessary for reporting taxes would then be sent to the authorities via “snail mail”. Since this process is essentially manual and is usually based only on information provided by the merchant, the merchant often had control over what was disclosed to their representative and, ultimately, what was reported to the authorities. Consequently, this practice allowed those relatively unscrupulous merchants to avoid paying taxes on considerable portions of their sales and other commercial transactions.
As a manual process, this method of tax compliance has also been prone to human error, not only in the accuracy of data collected, but also in the computation of the taxes owed. In addition, tax remittance was frequently delayed due to documents being late or lost in the mail, or merchants simply forgetting or otherwise omitting to remit sales and other transactional data to the authorities. The merchant would then be penalized for the late or incorrect tax payment.
In this connection, with the advent of the computer, many businesses developed customized tax calculation systems in order to semi-automate the tax compliance process. While these systems have been useful, because businesses and their financial constructs vary widely, the software used often needed to be tailored not only to each trade, but also specific applications had to be created to meet the particular requirements of each business. This resulted in considerable expense as well as delay in servicing the business's software needs. To further automate the tax compliance process, it was often necessary to integrate the tax software solutions with other business software. This required further customization of software applications as well as that of interface and other programs needed for integrating system-wide applications. Moreover, these systems frequently required trained personnel for effective operation and proper system maintenance. Despite the automation, accounting staff were still required to monitor and review the accuracy of each tax calculation, and to prepare tax returns. This was especially true where the taxable transactions involved multiple tax jurisdictions, since traditional systems lacked the robust analytical capability necessary for multi-jurisdictional tax decisions.
Domestic businesses essentially have three sales and use tax responsibilities (a.k.a. tax compliance). First, they must apply the correct amount of sales/use tax to their trade sales. Second, they must pay sales/use tax to merchants and/or accrue and self-report sales/use tax on taxable purchases. Third, they must accrue and self-report sales and/or use tax on conversions of resale inventory to internal use and movements of tangible personal property between taxable jurisdiction.
While the first and third responsibilities have been handled effectively by conventional software and other practices, the obligation of paying merchants and accruing and self-reporting on taxable purchases has presented an ongoing challenge to businesses. In particular, there are numerous variables concerning how merchants apply the tax. The merchant, for instance, may charge the full rate of sales and/or use tax, or may charge the state rate only, leaving the purchaser to accrue and self-report the local use tax, or may charge no tax at all because the merchant is not registered for sales or use tax collection in the ship-to jurisdiction, or may misapply the tax based on a misunderstanding of the taxability of the products or services sold, or a misunderstanding of the taxability of the order. These variables, combined with the fact that not enough information is collected in most conventional transaction processing systems to use for a tax payment/accrual decision, creates considerable complexity. Hence, some portion of the analysis must be done manually.
Recent trends have been to automate procurement and transaction processing systems to achieve cost savings through greater efficiency. This trend has put pressure on corporate tax departments, for example, to find ways to automate the sales and use tax payment and accrual process. Even with robust automated sales/use tax processes, most corporations have a relatively small number of transactions that are either too complex, or the dollars too great (i.e., and the risk is too large) to leave the decision to an automated system. For these transactions, human intervention is required.
Accordingly, a tax computation system is desired that automatically and intelligently identifies and monitors taxable transactions, correctly calculates in real-time the taxes due on the transaction, and identifies and extracts any transactions which require human intervention.